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We have heard tell from a little bird that the effective date for the new Companies Act No. 71 of 2008 is intended to be the 1st of October. It is also whispered, though, that the chances of that date being met are not good from a betting point of view because of some 105 amendments that have to be made to the Act itself. But what is very clear is that when it does come into effect, Companies will have two years to get their documentation -- Shareholders’ Agreements and the like, the Alterable provisions, and other housekeeping items – into the new required shape.
If during that period there is a conflict between the provisions of the new Act and the Articles, the present Articles will for the most part (depending on the nature of the conflict) survive. Certain provisions, however, will not.
For instance, under the new Act, every Shareholder in a Private Company has a right of pre-emption, pro rata to his shareholding in respect of the issue of new shares. If the Shareholders’ Agreement says anything to the contrary, it is invalid.
Another fascinating aspect of the Act will be the effect of the Business Rescue provisions under its Chapter 6. Contemplate Section 136 (2) “…despite any provision of an agreement to the contrary, during business rescue proceedings, the practitioner may cancel or suspend entirely, partially or conditionally any provision of an agreement to which the company is a party at the commencement of the business rescue period, other than an agreement of employment.”
You can by a cursory reading of these terms see that a Business Rescue Practitioner can pick and choose exactly the terms of a contract he wants to abide by. In other words, if in terms of a lease a rental is payable, the Practitioner may advise you as the Landlord that he likes the lease premises very much, but is not crazy about the rental and will not be paying it! Or likewise for a Bank, that the Practitioner has decided not to pay interest or to agree with the security previously furnished! This is going to have major consequences for the whole sphere of commercial undertakings not just in South Africa, but abroad as well, as foreign banks and manufacturers do business in South Africa, based on the sanctity of contract law and enforcement of provisions agreed upon.
Finally, you will be interested to know that these rescue procedures apply only to Companies. They specifically do not apply to Close Corporations, Trusts, or businesses conducted by individuals. It is indeed strange that so important a new provision is not thought through to the extent that it does not apply right across the board! |
